Quick Look:
- Central banks’ substantial gold purchases have driven a 49% price increase over 20 months.
- Early 2023 saw ETF outflows, but May brought renewed investor interest with slight increases.
- Gold (XAU) trades around $2,300, influenced by Federal Reserve policies, USD strength, and Treasury yields.
- The central bank plans to increase gold buying, anticipating a larger share of gold in reserves.
Gold markets are witnessing significant movements influenced by central bank activities worldwide. Notably, China’s central bank paused its acquisitions last month, marking a pivotal shift in the market. This halt comes after the World Gold Council (WGC) survey, which canvassed 70 central banks and revealed unprecedented expected purchasing among these institutions.
Gold Prices Soar 49% to $2,427/Oz Due to Central Banks’ Buying
The role of central banks in the gold market is undeniably critical. Last year alone, they collectively bought 1,037 metric tons of gold. This substantial buying activity has played a significant role in driving XAU prices upward by an impressive 49% over a span of approximately 20 months, from $1,631 per ounce in October 2022 to $2,427 per ounce recently. Specifically, the People’s Bank of China added 225 metric tons to its reserves last year, underlining its significant influence on the market.
Despite the overall bullish trend, the first quarter of this year saw net outflows from exchange-traded funds (ETFs), amounting to 113 tonnes. However, this trend reversed slightly in May, with ETF holdings increasing by 8.2 metric tonnes, indicating renewed interest from investors.
81% of Central Banks Plan Increased Gold Buying: WGC Survey
The WGC survey from February 19 to April 30 sheds light on future expectations among central banks. An overwhelming 81% of respondents anticipate increased gold buying in the coming years. Additionally, 69% believe that gold will constitute a larger proportion of their total reserves over the next five years. A closer look at the data reveals that 66% foresee a moderately higher share of gold, while 3% expect a significantly higher share.
Currently, gold (XAU/USD) is experiencing fluctuations around the $2,300 mark, trading within a narrow range as traders await clearer signals regarding the Federal Reserve’s future interest rate decisions. This period of uncertainty keeps the market in a state of watchful anticipation.
Gold Prices React to Fed’s Hawkish Stance and Potential Rate Cuts
The Federal Reserve’s recent policy meeting in June took a more hawkish stance, influencing market expectations. Investors are now predicting two rate cuts in 2024. Recent data, such as the May Retail Sales report, showed a modest 0.1% increase, fueling speculation that consumer exhaustion might prompt the Fed to cut rates in September and December.
Comments from Federal Reserve officials have also shaped market sentiment. New York Fed President John Williams expressed optimism about recent inflation data, whereas Boston Fed President Susan Collins highlighted the persistently high inflation levels.
Gold Prices Affected by USD Strength and Treasury Yield Decline
The U.S. Dollar remains defensive following a decline in U.S. Treasury bond yields, which has further implications for gold prices. The interplay between the dollar’s strength and treasury yields continues to be a significant factor in the XAU market’s dynamics.
Currently, gold is trading at $2,328.07, slightly declining at 0.07%. Key pivot points and resistance levels have been identified: the pivot point is $2,331.68, with resistance levels at $2,339.70, $2,347.51, and $2,355.48. Support levels are positioned at $2,322.23, $2,313.14, and $2,301.92. The 50-day Exponential Moving Average (EMA) is $2,322.11, while the 200-day EMA stands at $2,331.15. The market outlook remains bearish below $2,331.68 and bullish above this level.
